[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures already had pointed to a weak opening, as traders, after digesting Fed head Powell’s news conference, despite being dovish in nature, saw more negatives than positives. Despite the recent bullish theme in the indexes, Powell admitted that not all is well under then hood of the economy.

Additionally, reports covering some 21 states that Covid 2.0 may have arrived was enough to bring out the bears in full force.

With the stock market being Trump’s report card, Treasury Secretary Mnuchin emerged and tried to calm down the nervous nellies on Wall Street by promising more money to be pumped into the economy. ZH summed up his appearance:

• MNUCHIN SAYS OVER NEXT MONTH ANOTHER $1 TRILLION WILL BE PUMPED INTO U.S. ECONOMY
• MNUCHIN SAID ‘WE CAN’T SHUT DOWN THE ECONOMY AGAIN’
• MNUCHIN ‘QUITE OPTIMISTIC’ IN MEDICAL PROGRESS THAT HAS BEEN MADE ON COVID-19
• MNUCHIN SAYS FURTHER AID TO STATES WILL BE SUBJECT TO DISCUSSION WITH CONGRESS

Unfortunately for him, the markets were oblivious to his announcements and proceeded to plunge lower.

Economic data points supported the downward theme with jobless claims continuing to surge as 1.542 million more Americans filed for unemployment benefits for the first time vs. expectations of 1.55 million.

Just as poorly received, and clearly demonstrating the aftereffects of Covid-19, was data showing that one third of renters are worried about making the next payment, while 17% did not pay their last month’s rent.

The survey showed 11% of households with a mortgage skipped servicing payments last month, and 16% said they wouldn’t be able to make payments in the future.

These are the true facts of what is happening in the underlying economy, none of which have been given consideration by the markets, where the relentless addition of liquidity paints a picture totally disengaged from underlying conditions. The open-ended question remains:

“Has recognition finally set in that the economy will not see a V-shape recovery this year as reflected by market levels?”

Author Michael Snyder sees it this way:

Sadly, the truth is that economic conditions will not be returning to normal.  Yes, some of the jobs that were lost will be recovered as states start to “reopen” their economies.  But more than 100,000 businesses have already permanently closed during this new economic downturn, and all of those jobs are lost forever.

And yes, the level of economic activity will rise as states end their lockdowns, but it will still be much lower than it was before COVID-19 started spreading like wildfire in the United States.

In the end, the markets got thrashed pulling our Domestic Trend Tracking Index (TTI) back below its long-term trendline. A one-day sharp drop could be an outlier and does not necessarily indicate a change in the major trend, but it could.

Only time will tell, but today’s action could very well spell the end of the March 15 rebound and the final bursting of the stock market bubble. Or, it could prompt the Fed to finally “japanify” the US markets via outright purchases of stocks and stock ETFs to keep the bullish dream alive.

Tomorrow will be crucial. I will watch market activity and, should the downward draft continue, I will start liquidating our more volatile holdings and/or those that are triggering their trailing sell stops. As of today, none were prompted.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

It seemed like a tale of two markets with the Dow fluctuating wildly and ending at its lows of the day, while the Nasdaq never touched its unchanged line and powered back above its psychologically important 10k level, where it closed.

That was an important milestone to reach, and it took some 50 years to get there. It also shows some divergence, as technology more clearly has entered a bullish phase compared to the rest of the market.

The Fed’s meeting came and went, and I consider its commitment of buying some $80 billion a month of Treasuries nothing but outright debt monetization, which is sure to create some concerns about the future of the dollar.

The fallout was instant, as the Dollar Index got hammered to its lowest since March while, as was to be expected, Gold surged.

Fed chief’s message was somewhat ambiguous, as ZH posted:

*POWELL: WE WANT INVESTORS TO PRICE IN RISK LIKE MARKETS SHOULD

*POWELL: POPPING ASSET BUBBLE WOULD HURT JOB-SEEKERS

While the major trend in the markets remains bullish, despite our Domestic Trend Tracking Index (TTI) coming off its high, there could be trouble ahead.

I repeat my warning: Do not be invested in this market unless you have a clearly defined exit strategy and are willing to execute it when it is triggered.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The futures markets already indicated a weak opening with equities taking a leg lower based on worries that the current historic rally has exceeded the economic recovery. This was not surprising news, but the real culprit causing some anxiety may have been the upcoming revelation of any policy adjustments to be made during the current two-day Fed meeting. The announcement will be tomorrow around lunch time.

While no major changes are expected, the focus will be on the publication of economic projections, the first ones since last December. None of them were issued during the Covid-19 crisis.

For a change, an afternoon rebound did not materialize, and the major indexes slipped, but the Nasdaq scored another record high and briefly surpassed its 10k level but could not hold it into the close. Nevertheless, it has been an amazing run for the tech heavyweight, especially when considering that the current price is out of sync with forward earnings.

And to remind you again that global liquidity is at the center of this rebound, this chart tells all:

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

Friday’s upward momentum carried into this week with the major indexes relentlessly reaching for higher levels with the Nasdaq ending at a record high for the first time since February. If this any indication, the Dow and the S&P 500 are on track to follow suit.

Obviously, traders consider the Fed’s actions of keeping credit flowing during this pandemic, AKA reckless money printing efforts, highly successful, thereby totally ignoring the long-term consequences of such actions.

This week, the focus will be on the Fed’s announcement of their updated policy statement on Wednesday, which is set to include the first release of economic projections since December. Expectations are that the central bank will keep interest rates low and hope that more stimulus will be forthcoming will play big role in further market advances.

Should the May jobs report convince these central planners that no more stimulus is needed, the markets will not take that too kindly and will most likely sell off.

You will have heard many opinions as to the varies types of economic recovery we might be in for. Obviously, the most hoped for is the V-shape, which we have seen in equities, as they bounced off the March lows in an almost straight line.

The same can’t be said for the economy, and the various come-back possibilities are explained in this chart:

The jury is still out, but right now it seems that W- or L-shape rebounds reflect current realities, while the V-shape option is a pipedream.

Today’s ramp pushed our International Trend Tracking Index (TTI) above its trend line as well, thereby generating a new “Buy” for “broadly diversified international ETFs/mutual funds.” The effective date will be tomorrow, June 9, 2020, unless there is a large sell-off in the making, at which time, we will hold off another day before making commitments.

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